GST in India marked a turning point in the country’s tax history. It replaced a complex web of indirect taxes with a single, transparent system. Before 2017, businesses and consumers faced multiple levies at the central and state levels. However, the Goods and Services Tax simplified taxation and improved ease of doing business across India.
The Indirect Tax System Before GST in India:
Before GST in India, indirect taxation was fragmented and inefficient. The Centre levied excise duty and service tax. States imposed VAT, entry tax, luxury tax, and entertainment tax. As a result, taxes were charged on taxes, creating a cascading effect. Moreover, each state followed different VAT rules and rates.
Therefore, interstate trade became costly and time-consuming. Checkposts at state borders increased delays and logistics costs. According to the Economic Times, logistics costs earlier touched nearly 14% of GDP, hurting competitiveness.
In addition, compliance was complicated. Businesses filed multiple returns with different authorities. Small firms struggled the most. Consequently, tax evasion and disputes were common under the old indirect tax regime.
How GST in India Unified Multiple Taxes:
GST in India aimed to create “One Nation, One Tax.” The idea was to unify the market and remove tax barriers between states. Therefore, GST subsumed major indirect taxes like excise duty, service tax, VAT, and octroi. It introduced Central GST, State GST, and Integrated GST. As a result, the same tax applied across the supply chain.
Moreover, input tax credit became seamless. Businesses could now claim credit for taxes paid earlier. Therefore, prices reduced and competitiveness improved. For consumers, this meant clearer invoices and fewer hidden taxes. The digital GST Network also transformed compliance. Returns, payments, and refunds moved online. Consequently, transparency increased and tax evasion reduced.
Impact of GST in India on Businesses and the Economy:
GST benefited consumers through uniform pricing. Earlier, tax rates varied by state. However, GST reduced such disparities and increased transparency on invoices. Moreover, small businesses gained from composition schemes and simplified compliance. Startups found interstate expansion easier without multiple registrations. Therefore, India’s internal trade improved steadily.
At the macro level, GST strengthened formalization. More businesses entered the tax net. In addition, data-driven enforcement reduced tax leakage. Over time, this supports higher government revenues without raising rates.
GST Evolution: Simplification and Future Path
GST continues to evolve in India. In recent reforms often called GST 2.0, the GST rate structure was streamlined to mainly two slabs—5 % and 18 %—with a special 40 % rate for luxury or sin goods. These changes aim to make the tax even simpler and consumer-friendly.
Moreover, the Indian government periodically tweaks rates and slabs to address economic needs, such as enhancing consumption or providing relief to small businesses. These adjustments reflect GST’s dynamic nature as a policy tool.
Conclusion:
GST has replaced a complex indirect tax system with a unified framework. It simplified compliance, reduced costs, and strengthened the national market. Moreover, it improved transparency and supported long-term economic growth. As the system matures, GST continues to evolve with India’s expanding economy. Explore more tax and business insights now!
– Ketaki Dandekar (Team Arthology)
Read more anout How GST Replaced Indirect Taxes here – https://cleartax.in/goods-and-services